Institutional investors are still passionate about Bitcoin, but Ethereum is rapidly gaining popularity thanks to its good start in 2021
Bitcoin’s unprecedented rise to new all-time highs pulled the rest of the cryptocurrencies with it. As a result, Ethereum passed the psychologically significant $ 1,000 mark. The market capitalization of the second largest coin exceeded $ 100 billion.
ETN’s growth has taken its toll on the decentralized finance industry. The total amount of funds blocked in Defi applications has also updated its all-time high. At the time of this writing, it is $ 18 billion.
According to Mati Greenspan, founder of Quantum Economics, when ETH rises in price, all markets built on the Ethereum protocol also rush up.
When #Ethereum pumps it takes all the markets built on top of it along for the ride. pic.twitter.com/P7PP0iVUn9
— Mati Greenspan (tweets ≠ financial advice) (@MatiGreenspan) January 4, 2021
2021 will be the “year of Defi”
The decentralized app industry experienced a boom in 2020. At the beginning of January last year, the volume of blocked funds in DeFi protocols did not exceed $ 1 billion. Now, 12 months later, it is approaching the $ 20 billion mark.
Considering that almost the entire Defi ecosystem is built on the Ethereum blockchain, the growth of activity in this segment is fueling the upward momentum of the second-largest cryptocurrency. The more money locked into Defi protocols, the higher the base value of the entire Ethereum ecosystem.
On the other hand, the rise in the ETH rate contributes to an increase in the number of funds blocked in Defi. This is how Mati Greenspan explains this phenomenon:
“TVL is denominated in dollars, while a significant portion of the funds blocked in Defi are in ETH. Accordingly, when the rate of ETH rises, so does TVL. ”
Finance in the digital age
Defi, or Decentralized Finance, offers the products and services of the traditional financial system, digitally only and on decentralized platforms. In Defi applications, users transfer money or conduct other financial transactions without the involvement of banks or centralized exchanges.
Now any banking service, including loans and insurance, can be obtained in a decentralized form. Typically, these applications run on a peer-to-peer basis. This means that people interact with each other directly.
Without intermediaries, transactions become cheaper and easier, services are in demand, which leads to an explosive growth of innovations in the financial industry and opens up opportunities for users previously unavailable.
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